Countrywide Financial Inc., acquired by Bank of America Corporation (BAC) in 2008, recently entered into a settlement with Massachusetts worth $17.3 million. While a portion of the settlement fee – $11.3 million – will be utilized to compensate investors with the Pension Reserves Investment Management Board, the remaining – $6 million – will be handed over to the state.
Massachusetts’ Attorney General (AG) Martha Coakley was probing into the overall mortgage lending practices prevalent in the state preceding the financial crisis of 2008–2009. The aforementioned settlement is a consequence of this investigation, which was looking into allegations of Countrywide’s sale of faulty mortgage-backed securities (MBS) to investors.
Massachusetts reached similar settlements with other large banks like The Goldman Sachs Group, Inc. (GS), Morgan Stanley (MS), The Royal Bank of Scotland Group plc, Barclays PLC (BCS) and JPMorgan Chase & Co. in the recent past. Further, the AG confirmed that the state would continue its scrutiny of controversial financial operations and see to it that the affected investors are compensated.
#MICUS: Value Managers Say Their Style Is Far From Over
Note of Chuck Bath, David Wallack, and Ramona Persaud's presentation from the 2020 Morningstar Investment Conference. Q2 2020 hedge fund letters, conferences and more Dead Again? Value Managers Say Their Style Is Far From Over For more than a decade, large value has been one of the most difficult factors to own. Moderator Linda Abu Read More
BofA’s intra-day stock price movement reflects a positive market response following the announcement of the news on Jan 2, 2013. The stock closed at $16.10 per share, up 3.4% from the previous day.
The positive investor sentiment is justified, as though such settlements increase one-time legal expenses for the company, it eases the burden in the long run. Further, these settlements help the banks to focus on their main business, thereby aiding a speedy economic revival.
Apart from the latest deal, BofA also reached a $500 million mortgage settlement with investors on behalf of Countrywide, for which it received approval from a federal judge in Dec 2013. The plaintiffs had alleged that the quality of loans underlying home loans were misrepresented in the offer documents while selling RMBS from 2004 to 2007.
Countrywide acquisition has turned up as an unprofitable venture for BofA with the litigations pertaining to its security sale practices coming into light and thereby increasing legal expenses. BofA bought the mortgage lender for $2.5 billion, and since then has recorded more than $30 billion losses from bad loans, MBS claims and lawsuits.
BofA currently carries a Zacks Rank #2 (Buy).